Unilateral Push
The Korea Development Bank (KDB) arbitrarily interpreted the conditions for Kumho trademark rights, which will determine the sale of Kumho Tire, and unilaterally pressed ahead with the sale.
Kumho Industrial Co. received an official notice from the KDB on September 13 last year. The bank said it needs a nonexclusive right to use Kumho trademark for at least five years to sell Kumho Tire and asked for cooperation. The KDB specified, “The trademark service conditions can be adjusted within a reasonable compass.” Kumho Industrial held its board meeting and notified the KDB on September 19 the same year, “We are willing to grant a nonexclusive right to use Kumho trademark for five years.” However, the company stated, “The royalty fees and adjustment standards should be agreed on reasonable levels” as the KDB initially mentioned.
After nine months, Kumho Industrial received another official notice from the KDB on June 5 this year. The state-run bank offered terms of 20 years – the first five years of the mandatory period of the Kumho trademark use and additional 15 years of the voluntary period – as well as the right to cancel the trademark use by giving three months' notice to Kumho Industrial and 0.2 percent of Kumho Tire's annual sales as brand royalties. The KDB unilaterally notified the terms agreed with Double Star when signing a stock purchase agreement (SPA). There were no discussions or agreements with Kumho Industrial. The KDB also sent an official notice long after the media said the brand trademark rights will be an obstacle for the sale of Kumho Tire.
Kumho Industrial held its board meeting on the 9th and said that the Chinese firm should pay 0.5 percent in brand royalties for 20 years and cannot unilaterally cancel use of the trademark during that time. However, the company received an absurd reply from the KDB. The bank said, “The terms notified earlier are very important requirements to close the deal. The failure in the sale can adversely affect Kumho Tire to normalize the management,” forcing to accept the terms. There were no “adjustments within a reasonable compass” that the KDB promised before.”
This is why Kumho Industrial held its board meeting on the 19th and maintained its earlier stance. Kumho Industrial said, “We cannot change our original plans, which are minimum conditions to prevent the damages of Kumho brand and corporate value, without any grounds.” In fact, Kumho Industrial took a step back for the terms of 20 years of use now. It also said it wants to receive 0.5 percent of Kumho Tire's revenue as brand royalties from Double Star which is a similar figure with other major holding companies. However, the KDB unilaterally forced Kumho Industrial to accept its request, threatening Park Sam-koo, chairman of Kumho Asiana Group, that he can lose his control of Kumho Asiana and that Kumho Tire can be sent to the bankruptcy court.
The reason why the KDB pushes ahead with terms to use Kumho brand is to avoid its responsibility when the sale fails. Double Star offered 200 billion won (US$176.21 million) higher than the market value for the takeover price of Kumho Tire. But, the Chinese company has to pay an additional 300 billion won (US$264.32 million) when the sale is carried out under the conditions proposed by Kumho Industrial – 0.5 percent Kumho Tire's revenue as brand royalties for 20 years. This is the skit caused by the KDB’s indigested attempt to sell Kumho Tire.
Many creditors say it will hold Kumho Tire responsible for the financial mismanagement when the sale fails. They are drawing up plans to change company management or relinquish their positions as they rated D for Kumho Tire’s management assessment again last year following 2015. In this case, Chairman Park will lose his title as the chief executive of Kumho Industrial. However, many raise a question whether it is appropriate if Park or Kumho Industrial takes the blame. Some creditors predicted that the sale of Kumho Tire would face difficulties if they decides on the terms for trademark rights and pushes ahead with the sale without the agreement with Kumho Industrial. In fact, Woori Bank said to the KDB in March that it needs to settle the trademark issues with Kumho Industrial before creditors sign the SPA with Double Star.